US Credit Mkt Wk Ahead: Midterms, FOMC Overshadow Limited Data

Repeats Story Initially Transmitted at 23:40 GMT Nov 4/18:40 EST Nov 4

     CHICAGO (MNI) - Highlights for the week ahead include U.S. Midterm

elections on Tuesday and the Federal Reserve's policy announcement Thursday,

making up for minimal economic data (PPI on Friday), while the Treasury's 3-,

10- and 30Y auctions kick off Monday with $37B 3Y notes.

     Whether Tuesday's U.S. Midterm elections, widely viewed as a referendum on

President Trump, will have an immediate effect on markets remains to be seen.

     Since our last update, prediction market-implied probability of Democrats

recapturing the House of Representatives has fallen from 66% to 65% (according

to PredictWise, an aggregator). To be fair, the needle is shifting, with

PredictWise putting the odds of a Republican Senate retention at 92%, up from

83% on Oct 13. PredictIt, a 'stock market for politics', lists similar implied

odds.

     BAML ably sums up the state of play: "While national polls favor Democrats

in the House, limited polling of individual races raises uncertainty around the

outcome of competitive House races, especially in districts where Trump won in

2016. Also, the latest polling of vulnerable House Republicans seats have, on

net, improved." 

     BAML still thinks a "split Congress is the most likely outcome but the

probability of a 'blue wave' election in the House appears to have diminished.

Smaller margin of victory raises the possibility that the outcome of the midterm

elections will not be known on election night. The probability of a Republican

hold still appears small but has risen recently."

     Goldman Sachs' chief political economist Alec Phillips is a little more

circumspect on the macro impact of the outcome, but goes even further on the

tail risk of Republicans winning big: "I'm not sure any outcome would provoke a

strong reaction from the macro markets, but the one with the biggest chance is

probably Republicans gaining a bunch of seats in the Senate." 

     "Six Democratic seats are up for reelection in states that Trump won by a

substantial margin in 2016," Phillips notes, "so far the focus has been on how

many of those seats Democrats can hold, but they are all competitive races, and

it is certainly possible that the Republicans increase their majority instead.

That matters because a larger majority would provide Republicans extra room to

pursue priorities such as further tax cuts more aggressively, which would imply

even more upside to Treasury yields."

Second to last FOMC of the year.

     No rate change expected from the Federal Reserve, the FOMC's two-day

meeting announces Thursday, no press conference or summary of economic

projections. The speaker blackout period ends Friday at midnight.

     RBC Capital Markets economists wrote they are "not worried that the next

few Fed rate hikes will be policy mistakes. Instead we worry that the Fed will

shrink its balance sheet too far and that the Fed will push IOER and RRP too

close together."

     "Fed funds keeps rising because more banks are using Fed funds as an LCR

friendly funding source. That trend should continue, keeping upward pressure on

the effective versus other rates," RBC states. "The Fed is likely to respond by

just raising IOER 20bps in December. A November adjustment is very unlikely

because it would look like a 5bp ease in response to equity volatility."

Limited data highlighted by Friday's Final Demand PPI for October (0.2% est). 

     Morgan Stanley economists "look for some moderation in October and see the

core measure up 0.23%," after "core PPI (ex food, energy, and trade services)

surprised to the upside in September."

     "For the headline print, we see higher energy and food prices driving a

0.37% sequential gain, accelerating from the 0.17% growth in September. Our

month-over-month forecasts are consistent with year-over-year growth in core PPI

holding steady at 2.9% and headline PPI holding steady at 2.6% on an NSA basis."

Calendar of next week's market events (prior, estimate):

- Nov 05 Oct Markit Services Index (final) (54.7, --) 0945ET

- Nov 05 Oct ISM Non-manufacturing Index (61.6, 59.3) 1000ET

- Nov 05 Oct ETI (110.77, --) 1000ET

- Nov 05 US Tsy $45B 13W bill auction (912796QW2) 1130ET

- Nov 05 US Tsy $39B 26W bill auction (912796RP6) 1130ET

- Nov 05 US Tsy $37B 3Y note auction (9128285LO) 1300ET

- Nov 05 Dal Fed Pres Kaplan, national/global eco issues, Q&A 1900ET

- Nov 06 03-Nov Redbook retail sales m/m (0.1%, --) 0855ET

- Nov 06 Nov IBD/TIPP Optimism Index (57.8, --) 1000ET

- Nov 06 Sep JOLTS job openings level (7.136m, --) 1000ET 

- Nov 06 Sep JOLTS quits rate (2.4%, --) 1000ET

- Nov 06 US Tsy $26B 52W bill auction (912796RM3) 1130ET

- Nov 06 US Tsy $27B 10Y note auction (9128285M8) 1300ET

- Nov 06 Oct Treasury STRIPS Holdings 1500ET

- Nov 07 Day one of two FOMC policy meeting, Washington

- Nov 07 02-Nov MBA Mortgage Applications (-2.5%, --) 0700ET

- Nov 07 02-Nov crude oil stocks ex. SPR w/w (3.22m bbl, --) 1030ET

- Nov 07 Oct Kansas City Fed LMCI (0.89, --) 1100ET

- Nov 07 US Tsy $19B 30Y bond auction (912810SE9) 1300ET

- Nov 07 Sep consumer credit ($20.1b, $16.0B) 1500ET

- Nov 08 03-Nov jobless claims (214k, 213k) 0830ET

- Nov 08 04-Nov Bloomberg comfort index (60.3, --) 0945ET

- Nov 08 02-Nov natural gas stocks w/w (3,143 Bcf, --) 1030ET

- Nov 08 FOMC Policy announcement (no conf or SEPs) 1400ET

- Nov 08 07-Nov Fed weekly securities holdings ($2.291T, --) 1630ET

- Nov 09 Oct Final Demand PPI (0.2%, 0.2) 0830ET

- Nov 09 Oct PPI ex. food and energy (0.2%, --) 0830ET

- Nov 09 Oct PPI ex. food, energy, trade (0.4%, --) 0830ET

- Nov 09 NY Fed Pres Williams, opening remarks, book launch, NYFRB 0830ET

- Nov 09 Philly Fed Pres Harker book launch, NYFRB 0845ET

- Nov 09 Fed VC Quarles, fncl regs fireside chat Brookings, DC, Q&A. 0900ET

- Nov 09 Nov Michigan sentiment index (p) (98.6, 99.0) 1000ET

- Nov 09 Sep wholesale inventories (1.0%, 0.3%) 1000ET

- Nov 09 Sep wholesale sales (0.8%, --) 1000ET

- Nov 09 Q4 NY Fed GDP Nowcast 1115ET

--MNI Chicago Bureau; tel: +1 312-431-0089; email: bill.sokolis@marketnews.com

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

[TOPICS: MTABLE]